Taxation and VAT in the UAE

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Taxation and VAT in the UAE

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Is a mandatory financial fee or any other type of duty imposed on the taxpayer (individual or other legal entity) by a governmental organization to finance various public expenditures. The law punishes non-payment, tax evasion or resistance. Taxes consist of direct and indirect taxes and can be paid in cash or equivalent. Most countries have a common or agreed national tax system,

The term “taxes” applies to all types of non-voluntary fees, from income to capital gains to real estate taxes. The resulting revenue is usually called “taxes”.

Taxes are different from other forms of payment, such as market exchange, since taxes do not require approval and are not directly related to any services provided. The government imposes taxes through implicit or explicit threat by force.

In most modern systems, taxes occur on both physical assets, such as property, specific events, and sales transactions. The formulation of tax policy is one of the most controversial issues in modern politics.

Taxation in UAE;

The United Arab Emirates defines taxes as such “Taxation allows governments to correct certain behaviors that are detrimental to society and which cannot be left to the market to regulate. Excise taxes on products that are harmful to human health are a good example of this” Where it is not a tax on income, or government education and related services. The tax on education is imposed only on private institutions VAT 5% and on health care. All services are exempt from taxes except cosmetic or preventive, 5% imposed on them and the rest of the medical supplies not included in the Cabinet VAT 5%.

But the excise tax is a form of indirect taxes imposed on specific goods, which harm human health or the environment. These include soft drinks, energy drinks, and tobacco products was introduced across the UAE in 2017, Such as;

Soft drinks

include any soft drinks except for non-dehydrated water. Soft drinks are also any concentrations, powder, gel, or extracts intended to be made in soft drinks 50% taxes.

Energy drinks

include any beverages that are marketed or sold as a drink of energy and contain stimulants that provide mental and physical stimulation, including but not limited to: caffeine, taurine, ginseng, guarana 100% taxes.

Tobacco

and tobacco products 100% taxes.

Value Added Tax;

VAT is a tax on the consumption or use of goods and services imposed at each point of sale, it is a form of indirect taxes and is used in more than 180 countries worldwide.
The end consumer ultimately bears the cost. Companies collect and calculate taxes on behalf of the government
The VAT was introduced in the United Arab Emirates on 1 January 2018. The VAT rate is 5%, where the general consumption tax applies to the majority of transactions in goods and services, a limited number of exemptions could be granted.

As a result, the cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behavior. If the individual spends mainly on those things that are exempted from the VAT, it is unlikely to see any significant increase.
Companies will be responsible for accurate documentation of their business income and related VAT costs and fees.
Registered businesses and traders will charge VAT on all their customers at the prevailing rate and pay VAT on goods/services they buy from suppliers. The difference between these amounts is refunded or paid to the government.

Registration criteria for VAT;

The company must register VAT if the taxable imports and imports exceed Dh375,000 annually, it is optional for companies whose supplies and imports exceed Dh187,500 annually.
Foreign companies can also recover the value-added tax they incur when visiting the UAE.

How to collect VAT;

Registered companies collect VAT on behalf of the government. Consumers are subject to VAT in the form of a 5% increase in the cost of taxable goods and services they purchase in the UAE.

The UAE imposes VAT on taxable companies at 5% on the taxable supply of goods or services at each step of the supply chain.

Tourists in the UAE pay VAT at the point of sale.

VAT on real estate in UAE;

The rental of the residential building will generally be exempted from the VAT, but any commercial property in the UAE whether leased or sold as office space, retail or even taxable parking is not provided as part of the residential property.will be subject to Value Added Tax (VAT) of 5%.
Any property that is not fixed on the ground and then movable is also considered commercial for VAT purposes. Mobile homes, and regular hotels, bed, and breakfast and serviced apartments, also come under VAT.
There are also short-term residential properties for non-residents in the commercial category. If the lease is less than six months of age, the person who lives in it does not have an identity card, it will be considered commercially from the perspective of the VAT.
Short-term residential properties are also located for non-residents in the commercial category. If the lease is less than six months old and the person living in it does not have an identity card, it will be considered commercially from a VAT perspective.

Residential building owners

VAT may include selling, leasing or granting the right to any property, residential building owners are not required to register for VAT if they do not have any other business activities. Where owners have other business activities, they must take into account their further obligations. The owner of any non-residential building must register if the value of supplies exceeds the previous 12 months Dh37,000  or Dh 375,000 over the next 30 days, and will not be able to recover VAT in respect of expenses related to exemption from residential buildings, unlike the owner of the business building is generally able to recover VAT in respect of expenses related to the supply of the building.

The mixed-use building for VAT;

The rental or sale of a residential part of the building shall be treated as zero or exempt, whether this is the first offer or the subsequent offer. The rental or sale of a commercial part of the building is treated as a subject of 5% VAT.

The landlord tax should be divided on the building where there is an exemption from the offer, and part of the taxable offer (0% and 5%) can be recovered.

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